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Nafta Expansion Essay, Research
Paper

Should the
United States Pursue the Expansion of NAFTA?

Statement of the
Problem

The North
American Free Trade Agreement (NAFTA) entered into force on January
1, 1994. It created the world’s largest free trade area: 380
million people producing nearly $8 trillion worth of goods and
services. One of NAFTA’s primary objectives is to, “contribute to
the harmonious development and expansion of world trade and provide a
catalyst to broader international cooperation” (US Trade Rep.). To
ensure its role in advancing world trade NAFTA must expand its
boundaries to the Caribbean as well as Central and South America.

Assumptions

The NSS claims
that enhancing access to foreign markets is necessary for promoting
prosperity. It states, “Our prosperity as a nation in the
twenty-first century also depends upon our ability to compete and win
in international markets”(NSS). The expansion of NAFTA into Central
and South America will benefit US trade by reducing tariffs in one of
the fastest growing regions in the world. The reduction of tariffs
will improve the US’ ability to access foreign markets by virtually
eliminating the costs to enter the markets. This will enable US
corporations to sell their goods at lower prices, therefore allowing
the people of the region to purchase US goods. This ability to access
such markets will eventually increase the number of capital intensive
jobs available in the US. The institutions and mechanisms that NAFTA
created have smoothed the path to allow North American businesses to
trade, invest and position themselves for better productivity and
comparative advantage, thus making our economies stronger against
shocks, such as Mexico’s 1994 peso crises. NAFTA does not just
safeguard US businesses, it protects the markets that provide
employment for our workers.

Internationally,
the advancement of NAFTA will help create new employment
opportunities, and improve working conditions and living standards
abroad by opening up the US marketplace to their major industries.
Opening up trade will also enable the countries of the region to
sustain economic development. Improved economic conditions have
become an important political stabilizer, as it has effectively
increased the cost of instability (Harvard Int. Review, Fall 97; pg.
28). The expansion of NAFTA will have as much of an impact on
political advancement as it does on economic advancement. Free trade
is a necessary ingredient in creating sustainable development, which
is important in the consolidation of democracies. In order to assist
in the transformation to stable democracies, the countries of Central
and South America need access to the North American free market
(H.I.R., Fall 97; pg. 28). Free trade increases economic
competitiveness. This will aid in establishing the norms of political
competitiveness, a key factor in stabilizing a democracy.

The NSS states
that, “our prosperity at home depends on our leadership in the
global economy” (NSS). The US’s involvement in future agreements
will enable it to maintain its leadership role in the globalized
market. An agreement with Chile and MERCOSUR (Southern Common Market)
will strengthen the US’s presence in the region.

Facts

In relation to
the size of the economies, US trade with Canada and Mexico has become
much larger than that with any other trading partners. In 1996,
almost one-third of the US two-way trade in goods with the world was
with Canada and Mexico, at $412 billion. Two-way trade with our NAFTA
partners has grown 44 percent since NAFTA was signed, compared with
33 percent for the rest of the world (Democratic Leadership Council,
9/97). Mexico and Canada accounted for 53 percent of the growth in
total US exports in the first four months of 1997. Canada remains our
largest trading partner, and Mexico has recently surpassed Japan as
the US’s second largest export destination in 1997 (Tracking US
Trade, 2/98). In 1996 trade with these regions supported an estimated
2.3 million US jobs. This is an increase of 311,000 jobs, 189,000
because of exports to Canada, and 122,000 from exports to Mexico
(Tracking US Trade, 2/98). In contrast according to The Economist
only 117,000 Americans have signed up for benefits offered to workers
displaced by NAFTA.

The US must look
to the Western Hemisphere for further economic prosperity. Within the
last five years, the Western Hemisphere has become the largest
regional destination for US exports, accounting for almost 40 percent
of US trade in 1996. Goods exported to the Hemisphere in 1996 totaled
$242 billion (Tracking US trade, 2/98). Latin America, including
Mexico and the Caribbean Basin has a large consumer market, with a
population estimated at more than 470 million. The total gross
domestic product of Latin America and the Caribbean Basin was about
$1.5 trillion in 1995, with growth expected to average 5 percent or
more through the year 2000 (Dem. Leadership Council). The US supplies
over two-fifths of the region’s imports. There is no other part of
the world where the United States is so competitively positioned.

Twenty trade
agreements have been negotiated within the hemisphere without US
participation. The EU has agreed to sign a free trade agreement with
the nations of MERCOSUR. MERCOSUR is the largest preferential trade
agreement in Latin America. It consists of Argentina, Brazil,
Paraguay, and Uruguay. The MERCOSUR countries alone represent a
market of 220 million consumers with a combined GDP of more than $1
trillion. Two-way trade between the US and MERCOSUR was about $30
billion in 1996 (US Trade Rep). Brazil is the eighth largest economy
in the world and is the single largest economy among the US export
markets in the Latin America and Caribbean region, with a GDP of
$472.5 billion in 1994. US goods accounted for 21.1 percent of
Brazil’s total imports in 1995. Argentina is the second largest
economy of the Latin American and Caribbean nations with a GDP of
$227.4 billion in 1994, while in 1994 Paraguay and Uruguay have a
combined GDP of $22.5 billion and are the thirteenth and seventh
biggest economies in those regions (US Trade Rep). The EU has also
agreed upon having negotiations with Chile on creating a reciprocal
agreement with them. Chile is the fifth largest economy among the US’
major export markets in the Latin America and the Caribbean region,
with a GDP of $49.3 billion in 1994. Chile also posted 6 percent
growth in 1996 (US Trade Rep).

Discussion

The heads of 34
American and Caribbean countries, all except Cuba, met in Miami where
they agreed to aim for a Free-Trade Agreement of the Americas (FTAA)
by 2005. This agreement would consolidate the already existing
agreements of NAFTA, MERCOSUR, CARICOM (Caribbean Common Market), and
the Andean Region (Bolivia, Colombia, Ecuador, Peru and Venezuela).
It would be a great failure for the US not to take the lead in
negotiating this trade pact. Canada and Brazil have already stated
their proposals for an FTAA. It is time for the US to do the same.
With the US as the most important player in the negotiations,
opponents of the expansion of NAFTA such as Dick Gephardt can play an
active role in establishing firm environmental and labor laws within
the region. With the opponents out of the way it is possible to
imagine a prosperous trade union with powerful markets such as Brazil
and Chile. Brazil alone has already reduced its tariffs on US goods
to 13.6 percent in 1996, from 45 percent in 1986 (US Trade Rep.).
During this time US exports to Brazil have tripled. Brazil, Chile,
and Argentina are considered by Corporate Locations annual investment
survey as the 2nd, 3rd, and 4th most attractive regions in the world
for investment (H.I.R., Fall 97, pg. 21). By joining an FTAA and in
turn reducing trade restrictions we can expect even higher levels of
growth in the future.

The expansion of
NAFTA will positively affect the US’ labor force. Through the
creation of a free trade arena with Mexico and Canada, the US labor
force has benefited more than it has been hurt. The high skill worker
has profited greatly, while the low skilled worker has somewhat
struggled. Today, export related jobs pay on average 15 percent
higher wages. While, those without the necessary skills to compete in
the global market may find themselves with even lower wages or
possibly job displacement. For the prospect of further market
integration, it is important that the US increases investment in its
labor force. This requires increased funding for quality education
and training programs. Although it is true that approximately 117,000
Americans have lost their jobs due to NAFTA, this is not a large
number in comparison to the 1.5 million Americans who lose their jobs
each year from factory closures and corporate restructuring, and the
2.8 million new jobs created each year in the US (When Neighbors
Embrace). It is estimated that the US economy now creates in one
month the total number of jobs lost due to NAFTA in three years
(Democratic Leadership Council). From this it may be concluded that
market integration has produced more jobs than lost, and that further
integration may expect to produce similar results.

Enlargement of
NAFTA will stimulate democratic advancements in Latin America and the
Caribbean, an area where 19 of 20 nations have recently established
the institutions of democracy. NAFTA has already assisted Mexico in
its first transition of political power. The Mexican democracy took a
large step in redistributing power among the three leading political
parties. After 60 years of control, the PRI, no longer controls a
majority in the Mexican Congress. This change reveals that the
economic reforms made by NAFTA have been accompanied by a process of
significant political reform in Mexico (Democratic Leadership
Council). A widened open market will have similar effects on the rest
of the Western Hemisphere.

Conclusion

NAFTA was
created with the intention of expansion. Canada and Mexico are both
willing to take on new members, it is the US’ lack of direction
that has halted such advancements. It is time for the US to end a
tiresome debate and step forward to lead the Western Hemisphere to
global economic prosperity in the 21 century. If the US fails to do
so, other trade areas may surpass the US’ regional hegemony.

Recommendations

By 2005, the 34
nations of Latin America and the Caribbean have agreed to join in the
FTAA. It is possible to draft an entirely new trade agreement, or
merge the existing ones. It is recommended that the US takes part in
leading the Western Hemisphere into agreement in the FTAA by merging
NAFTA, MERCOSUR, CARICOM, and the Andean Region. This will be made
possible by first getting Congress to renew Fast Track, and second,
informing the public of the continuous benefits of free trade.

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